Replies to post #605998 on Fannie Mae-No Politics (FNMA)

[CatBirdSeat]

Who cares about JPS when you can have ownership and own common stock that has an unlimited upside.

This is a commons board.

[FFFacts]

My point was that even outside of a liquidation, the liquidation preference of the prefs matters and has value.

Yes liquidation preference matters but only if there is value in them. What is the book value of the preferreds? What is the value of preferreds in a liquidation or restructuring scenario?

1) Which series?

Doesn't really matter because it is a nominal amount.

A re-IPO with this huge block of prefs in the capital structure is much more difficult than if they were exchanged for commons.

This is where we disagree. I argue that the variable rate low yielders don't matter much because the preferred stock payout would be very minor if dividends get turned on. Even the fixed rate preferreds won't get paid until the BOD declares it and when they do is not certain.

and it appears that a restructuring of FnF's capital structure is exactly what is going to happen.

I agree.

Yes. But even then, in those scenarios, the prefs generally outperform the commons by a large amount

Do you have any examples?

Also, the only realistic way that the prefs take a haircut is in conjunction with an exchange for commons.

There are many examples of preferred stock that don't trade near their stated value. The low yielders if never converted could trade at a substantial discount to liquidation value for years, until the benchmark rises.